Correlation Between China State and BYD Co

Can any of the company-specific risk be diversified away by investing in both China State and BYD Co at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining China State and BYD Co into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between China State Construction and BYD Co Ltd, you can compare the effects of market volatilities on China State and BYD Co and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in China State with a short position of BYD Co. Check out your portfolio center. Please also check ongoing floating volatility patterns of China State and BYD Co.

Diversification Opportunities for China State and BYD Co

0.82

Correlation Coefficient

China State  BYD Co

Very poor diversification

The 3 months correlation between China and BYD is 0.82. Overlapping area represents the amount of risk that can be diversified away by holding China State Construction and BYD Co Ltd in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on BYD Co and China State is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on China State Construction are associated (or correlated) with BYD Co. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of BYD Co has no effect on the direction of China State i.e., China State and BYD Co go up and down completely randomly.

Pair Corralation between China State and BYD Co

Assuming the 90 days trading horizon China State is expected to generate 1.01 times less return on investment than BYD Co. In addition to that, China State is 1.15 times more volatile than BYD Co Ltd. It trades about 0.09 of its total potential returns per unit of risk. BYD Co Ltd is currently generating about 0.1 per unit of volatility. If you would invest  24,110  in BYD Co Ltd on August 31, 2024 and sell it today you would earn a total of  3,348  from holding BYD Co Ltd or generate 13.89% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

China State Construction  vs.  BYD Co Ltd

China State Construction

Risk-Adjusted Performance

6 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in China State Construction are ranked lower than 6 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, China State sustained solid returns over the last few months and may actually be approaching a breakup point.

BYD Co

Risk-Adjusted Performance

7 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in BYD Co Ltd are ranked lower than 7 (%) of all global equities and portfolios over the last 90 days. Despite somewhat weak basic indicators, BYD Co sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with China State and BYD Co

The main advantage of trading using opposite China State and BYD Co positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if China State position performs unexpectedly, BYD Co can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in BYD Co will offset losses from the drop in BYD Co's long position.

The idea behind China State Construction and BYD Co Ltd pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Aroon Oscillator module to analyze current equity momentum using Aroon Oscillator and other momentum ratios.